Maryland marijuana regulators look to General Assembly to help resolve ownership controversy

Maryland Medical Cannabis Commission chairman Brian Lopez attended the policy committee meeting on Tuesday. He said he expects the General Assembly to address concerns about big out-of-state companies taking over small Maryland cannabis firms that hold state licenses. (Doug Donovan / The Baltimore Sun)

Maryland’s medical marijuana regulators said Tuesday that the General Assembly likely will have to clarify whether state rules governing the cannabis industry were meant to prevent big out-of-state companies from dominating the market by taking over homegrown firms.

The Maryland Medical Cannabis Commission’s policy committee on Tuesday deferred voting on a proposal to amend existing regulations to make clear that companies cannot own more than one license in each of the industry’s three categories: growing cannabis, processing it into products and selling it at dispensaries. Commissioners said they expected the General Assembly to weigh in and decide the matter during the annual 90-day legislative session that begins Wednesday.

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Several companies — mostly well-financed, experienced operators from outside of Maryland — have gained control of multiple licenses across categories by entering into “management agreements” with licensed firms for fees or revenue sharing in a state market that generated nearly $100 million in sales in 2018, the industry’s first full year.

Currently regulators must approve any ownership changes that represent control of 5 percent or more of a licensed company. But the state’s regulations do not explicitly address management agreements. The cannabis commission has held that such deals are permissible under the state’s rules so long as ownership of a license does not change hands.

A Massachusetts company that trades on the Canadian stock exchange has offered $30 million to a Frederick firm to expand its presence beyond its current Baltimore County store in a deal that challenges a regulation prohibiting such consolidation.

The proposed amendments would require commission approval of all management agreements before they move forward. The changes would also allow the commission to reject any agreements determined to be an “invalid transfer” of ownership or if the management firm does not pass a background check or “for other good cause.”

“Management agreements in and of themselves do not violate regulations,” said Brian Lopez, chairman of the cannabis commission. “It’s when they’re structured to circumvent the ownership rules.”

Several lawmakers said last year they want to change the rules to prevent market consolidation that would hurt Maryland firms. Their concerns arose after The Baltimore Sun reported that several out-of-state firms had entered into management agreements that will effectively give them control of Maryland marijuana companies.

The commission was unaware of three of the deals until notified by The Sun, frustrating some lawmakers.

Massachusetts-based Curaleaf, which has two of its own licenses in Maryland, has offered $30 million to acquire a small Frederick County company authorized to grow, process and sell cannabis. Other large, national companies — MedMen, MPX and GTI — also have pending deals for Maryland firms.

Chicago-based Green Thumb Industries, or GTI, stated in investment documents that is has a “controlling ownership over five retail dispensaries” in Anne Arundel, Harford and Montgomery counties. Three of its RISE dispensaries are open in Joppa, Silver Spring and Bethesda.

Del. Cheryl Glenn, a Baltimore Democrat who has worked to establish regulations overseen by the commission, has said she intends to address the issue because legislators are “adamantly opposed to large out-of-state companies coming in and buying up licenses.”

At the policy committee’s meeting Tuesday at the University of Maryland law school in Baltimore, some cannabis company owners said they are upset that other companies have entered into agreements that they expect will be allowed to remain in place. These local owners say the commission had encouraged them to stay away from such deals.

“We’ve been playing by the rules and now we’re being penalized,” said Kevin Goldberg, founder of Frederick-based Green Leaf Medical.

Goldberg said a law passed last year by the Assembly that barred any transfers of license ownership for nearly two years accelerated the use of management agreements by national firms eager to expand market share. He and others said the legislature should eliminate that restriction so that companies such as his can expand, too.

“The toothpaste is out of the tube,” said Goldberg, whose company operates growing and processing operations. “Big companies started to use management agreements to circumvent ownership restrictions. The commission has to accept that consolidation has already happened.”

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Ashlie Bagwell, a lobbyist for the Maryland Medical Dispensary Association, said the danger to independent dispensaries is that dispensaries owned by big companies that grow and process their own marijuana would be able to buy those products for less than independent businesses like Windsor’s. Others said the minority owned license holders whom the commission is beginning to recruit for a new batch of licenses would enter the market at a major disadvantage if consolidation is allowed to continue.

The Maryland Medical Cannabis Commission on Thursday voted unanimously to ban advertising for marijuana products on billboards, in print publications and on the radio. The move was resisted by one trade group that said the commission's move violates the free speech of companies.

Andrew Cohen, a partner in Grassroots Cannabis, said his growing and processing company is affiliated with “one of the evil out-of-state” firms” but that he is from Maryland and his operations employ 100 people in the state. To restrict management agreements would hurt companies struggling to get profitable.